After the lapse of two weeks, KSE-100 index
finally bounced back on Monday with the news on KSE board meeting
SECP to discuss future trading rules and margin financing. Market
reacted negatively to the bomb explosion in Karachi Tuesday,
however, the privatization of NRL later on turned the market
sentiment. On Wednesday, the market remained positive throughout the
day where NRL and Attock group stocks along with the banks having
exposure in NIT units (NBP, BoP and Faysal Bank) outperform the
market. Relaxation in futures rules and rumors on PTCL privatization
price led the market on Thursday. The market underwent into a
correction phase on Friday as investors started booking profits.
Rounding up the week, the KSE-100 index gained 746.02 points over
the last week.
OUTLOOK FOR THE FUTURE
The delay in privatization of PTCL is likely to
be a major negative for the market initially. PTCL has been leading
the uptrend at the KSE since late. The next week will also begin
with the announcement of the Federal Budget FY06 on Monday,
(06-Jun-2005) evening which is after the closing of first trading
session, however, we may see some speculations over the rumors over
the market-related budget measures. Overall we expect the budget to
be a non-event for the market as the market is facing bigger issues
than the budget, however, an increase in CVT is likely to hurt the
day traders as cost factor goes up and arbitrage opportunities
decrease. Phasing out of badla from 08-Jun-2005, almost immediately
after the announcement of the budget would be a major event for the
market than the budget.
With non-availability of margin financing, badla
phase out is likely to lead to a liquidity crunch in the stock
market. This will dry out volumes in the ready market. However, with
relaxation in future contracts (applicable from the next month) we
may expect some volumes to shift from ready to future market from
the next month. We advice investors to remain cautious and focus on
fundamentally strong scrips like Callmate, Fauji Fertilizer, KAPCO,
Fauji Fertilizer Bin Qasim and Pakistan Oilfields.
The major developments this week were:
•In the last month, private credit offtake
stood at PkR10bn as compared to monthly average of PkR40bn for the
first nine months.
•According to the data released by State Bank
of Pakistan (SBP), trade account deficit was recorded at USD4,824mn
in the first 10M of current fiscal year.
•Total Foreign Direct Investment (FDI) was
recorded at US$891.5mn (17.2% higher YoY) in the first 10M of
current fiscal year.
•Prime Minister Shaukat Aziz has formed a high
level tripartite committee comprising secretaries of IT &
Telecom, Privatization Commission and Interior to hold talks with
representatives of protesting PTCL employees and resolve the issue.
•Privatization Commission (PC) has received
first installment of PkR3.348bn or 25% of the privatization price
for Pak-Arab Fertilizer.
•Large Scale Manufacturing (LSM) registered an
impressive growth of 16.41% in the first 10M of current fiscal year
as compared to the full-year target of 12.0%.
•The Oil Companies Advisory Committee kept
domestic petroleum prices unchanged.
•State Bank of Pakistan (SBP) maintained the
Export Finance Scheme (EFS) for the month of June.
•Central Board of Revenue (CBR) has collected
PkR495bn in the first 11 months of current fiscal year.
•Qazi Hussain Ahmed has threatened to quit the
position of alliance chief.
•The SECP finally showed some relaxation and
has increased per broker trading limit on futures counter to 3% from
the existing limit of 1% of free float.
•The government is considering buying back the
sovereign guarantee made available to Pakistan PTA along with
removal of General Sales Tax in the upcoming budget.
•Cement sales grew by 18% to 1.426mn tons
during the month of May-2005.
•Dr. Salman Shah and Dr. Ashfaque Khan would be
releasing the Economic Survey for the year 2004-05 on Saturday
•According to the Chairman of National Clearing
Company of Pakistan (NCCP), eight commercial banks to start Margin
financing on 135 companies from 03-Jun-05.
•Public subscription for 10% shares of United
Bank Limited with 5% green shoe option begins on Friday 03-Jun-2005
and will end on 08-Jun-2005.
THIS WEEK'S TOP STORIES
BUDGET FY06 — SUSTAINING THE GROWTH MOMENTUM
The Federal Budget FY06 is scheduled to be
presented in the National Assembly on 6-Jun-05. The expected
measures in the upcoming budget are likely to be aimed at sustaining
growth momentum generated over the last couple of years. We expect
major thrust of the budget to be on infrastructure development,
which is likely to lead to a higher Public Sector Development
Program. However, the real test would be actual utilization of this
allocation as the government has fallen short of the target during
the last three years. The major theme of the budget is likely to
remain "reducing the cost of doing business in Pakistan".
BUDGET FY06 — GAINERS & LOSERS
We are expecting Cement, Fertilizer, Private
banks and Textile sectors to be the major gainers of the upcoming
budget while Autos would be the loser. (I) PkR306bn allocation to
PSDP is expected to boost cement demand; (II) Increase in support
prices would have a positive impact on farmer's purchasing power and
hence fertilizer demand/margins; (III) The upcoming budget is likely
to provide another positive shot in the arm for the banking sector
in the form of lower tax rates, which are expected to be reduced to
38% and higher consumer spending (IV) Reduction in import duties and
GST on raw materials and machinery would enable textile
manufacturers to increase their competitiveness to meet growing
opportunities in the post WTO era (V) Reduction in tariffs for CBUs
will have a negative impact on Autos.
NRL PRIVATIZATION — FETCHING A GOOD PRICE
The successful privatization of National Refinery
Limited (NRL) definitely bodes well for stock market sentiment. The
privatization price came much above consensus expectations at
PkR483/share. Even the differential between the prices quoted by the
three bidders was significant, with the next highest bid 85% lower
than the highest bid. Though the acquisition price does seem to be
expensive, we are of the opinion that the strategic value of NRL was
different for all three bidders. We believe that PICIC Growth Fund
is the best vehicle to capitalize on the privatization of NRL.
Faysal Bank, National Bank and Bank of Punjab are also likely to be
indirect beneficiaries of NRL's privatization through their holding
IMPRESSIVE FISCAL MANAGEMENT!
The sound macro management picture of Pakistan is
reflected in the budgetary operations during the first 9 months of
current FY. According to the data released by Ministry of Finance (MoF),
Pakistan's overall budget deficit was recorded at 2.0% of GDP
(PkR131.29bn) in the first 9M of current fiscal year, as compared to
the full-year target of 3.2% of GDP. We believe that the cap on
expenditure and increase in tax revenues is primarily responsible
for the impressive fiscal management during the period. Total
revenue collection was recorded at PkR634.90bn during Jul-Mar FY06.
At the same time, the expenditures incurred by government was
recorded at PkR766.620bn. We expect the MoF to target a budget
deficit at 3.2% of GDP in the forthcoming budget with the aim of
'Sustaining GDP growth rate at 7.0% level for the next 5 years'.
However, the major thrust of the next budget is likely to be on
infrastructure development, which is likely to result in higher
Public Sector Development Program (PSDP) spending.
EXISTING CEMENT CARTEL ARRANGEMENT EXPIRING
We are expecting 4mn tons to be added to cement
capacity immediately after the expiry of the existing cement cartel
arrangement on 30-Jun-2005 while another 4.5mn tons (clinker) would
be added to the industrial capacity in the middle of FY06. Lucky,
Dewan Hattar and Cherat Cement would be the gainers of the
arrangement while Maple, and Pioneer would be the losers. On the
other hand we are expecting the cement demand to grow in par with
GDP growth after FY07 while the stronger-than-GDP growth phase is
about to end. We maintain our underweight stance for Cement sector
owing to our rising concerns our excessive supply additions widening
the supply-demand gap to more than 50% after FY07.
Mkt. Cap (US $ bn)
Avg. Dly T/O (mn. shares)
Avg. Dly T/O (US$ mn.)
No. of Trading Sessions
KSE 100 Index
KSE ALL Share Index